Cash return beckons for Arix shareholders

Arix Bioscience (ARIX:117p), a global venture capital company that holds a diversified portfolio of unlisted and listed investments in early-stage biotechnology businesses, is nearing the end of a strategic review that could lead to a tax-efficient wind-down of the company. The departure of chief executive Robert Lyne on results day would certainly indicate that a cash return to shareholders is the most likely end game rather than the company continuing in its current format.

It’s an easy sell to shareholders given that Arix holds cash of £101mn (78p) and around half of the £68mn (52.5p) listed portfolio is invested in two Nasdaq-listed clinical-stage companies: Aura Biosciences (US: AURA), a company developing a novel class of virus-like drug conjugate (VDC) therapies for multiple oncology indications, including ocular and urologic cancers; and Disc Medicine (US:IRON), a company dedicated to the discovery and development of novel therapeutic candidates for debilitating haematological diseases based on pathways of red blood cell biology.

Mark-to-market gains of £14.9mn on the two Nasdaq holdings and £3.5mn gains on Arix’s £22.1mn (17p) public opportunities portfolio were the major components of the £17mn valuation uplift across the group’s portfolio in the first half.

Unlisted portfolio in the price for free

Effectively, the combined value of the £101mn (78p) cash pile and £68mn (52.5p) of listed holdings is worth 11 per cent more than Arix’s market capitalisation of £151mn (117p). That leaves £66.2mn (51p) of unlisted holdings in the price for free even though Arix holds an 8.8 per cent stake worth £24.9mn (19.2p) in Artios, a company that is developing precision medicines for the treatment of cancer. Artios has entered a research collaboration with Novartis (CH:NOVN) to discover next-generation DNA damage response targets to enhance its radioligand therapies.

Artios closest comparable is Nasdaq-quoted clinical-stage precision oncology company Repare Therapeutics (US:RPTX). That company has a $525mn market capitalisation, or 53 per cent higher than Artios’ own read-through valuation even though Artios has arguably more advanced programmes, is well funded, and is in Phase 2 trials, having successfully completed a Phase 1b dose expansion study in the first half of 2023.

Furthermore, there is investor demand for the unlisted holdings. Evommune, a private clinical-stage company inventing new ways to treat inflammatory diseases, closed a Series B round in June 2023 that raised $57.5mn. Investee company, Ensoma, also closed a Series B round in the first half, raising $135mn. Arix’s stakes in the two companies are worth £6.7mn and £13.6mn, respectively, at current exchange rates. In other words, the stakes in Artios, Evommune and Ensoma account for more than two-thirds of the unlisted portfolio’s total valuation.

So, having selected the shares, at 110p, in my 2023 Bargain Shares Portfolio, I feel the 37 per cent share price discount to NAV continues to skew the investment risk firmly to the upside. Buy.

■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com at £16.95 each plus P&P of £3.75, or £25 plus P&P of £5.75 for both books.